Professional Negligence Law Reporter
Decisions: Accounting
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Firm that provided tax preparation and auditing services may be liable to clients for malpractice
November 19, 2024A Michigan appellate court held that an accounting firm that provided tax preparation and auditing services may be liable to their clients for malpractice where they had a continuing professional relationship.
Philip Kim and Ema Osaki-Kim were audited by the IRS in 2019, allegedly for errors the Kallas Corp. made when preparing the Kims’ tax returns from 2013 to 2016. In 2022, the Kims, who settled their tax case in 2021, sued Kallas Corp. for errors the corporation made during the audit and when preparing a petition to the tax court. The defense moved for partial summary disposition of, among other claims, the plaintiffs’ accounting malpractice claim. The trial court granted the motion, finding that the malpractice claim was time-barred under the applicable two-year limitations period.
Reversing summary disposition of the plaintiffs’ malpractice claim, the appellate court agreed with the plaintiffs that the claim was not time-barred because the defendant’s services did not terminate until 2021. Regarding the plaintiffs’ 2013 taxes, the defendant provided auditing services until 2021, the court found, rejecting the defense argument that its services concluded when the returns were filed in 2017. A 2013 engagement letter between the parties provided that the defendant would prepare the plaintiffs’ 2013 federal and state taxes but did not state that the engagement would cease when the returns were filed, the court said, adding that the defendant did not send additional engagement letters for its preparation of the plaintiffs’ subsequent returns.
Thus, the court concluded that the parties had a continuing professional relationship and preparation of the plaintiffs’ 2013 tax returns was part of this relationship, which did not end until 2021. Consequently, the trial court had erred in concluding that the plaintiffs’ malpractice claim was time-barred.
Citation: Kim v. Kallas Corp., No. 365257 (Mich. Ct. App. Sept. 19, 2024).
Plaintiff counsel: Michael B. Rizik Jr., Grand Blanc, Mich.
